This KFC, Pizza Hut Franchisee Partner Stock Can Jump To Rs 210, Good To Buy?

With covid now, out of the way, it maybe time to look at quick service restaurant stocks or QSR stocks and there could be none better than the Devyani International stock. Broking firm Motilal Oswal has a buy on the QSR stock with a price target of Rs 210.

Devyani International: Stock is a play on some really big brands

Devyani International has three verticals that includes stores of KFC, Pizza Hut and Costa Coffee operated in India (KFC, Pizza Hut and Costa Coffee referred to as Core Brands, and the business in India referred to as the (Core Brands Business); stores operated outside India primarily comprising KFC and Pizza Hut stores operated in Nepal and Nigeria (International Business; and certain other operations in the food and beverage industry, including stores of our own brands such as Vaango and Food Street (Other Business).

Motilal Oswal is betting on the entire theme of QSRs. "We believe QSRs are a great play on the opening up theme, with healthy sales momentum and higher pricing power. Our channel checks indicated continued demand for QSRs in Apr'22, despite the price hikes. We maintain our Buy rating on the stock of Devyani International," the broking firm has said.

Price hikes to help margins

According to Motilal Oswal, the management has taken a significant part of the required price hike already (8-9% in Apr'22) and will raise prices further, if required.

"Gross margin may be affected in the near-term. However, the management expects a stable gross margin and brand contribution margin in FY23.

The opening of 250 stores in FY22 aided better fixed cost absorption and similar gains will continue going forward as the management maintained its store opening guidance at 200-250 stores in FY23. Even at the upper end of 250 stores, capex is likely to be Rs 3 billion. Internal accruals are likely to suffice for this expansion Devyani International has not yet recognized all deferred tax assets yet. The tax rate is expected to remain low in FY23 as well," the brokerage has added

Buy the stock with a price target of Rs 210

Motilal Oswal has a buy call on the stock of Devyani International with a price target of Rs 210 on the stock. "Devyani International has not yet recognized all deferred tax assets yet. The tax rate is expected to remain low in FY23 as well. We remain bullish on Devyani International's prospects on account of KFC's strong brand equity, turnaround in Pizza Hut, driven by focus on delivery, sharp network expansion across the portfolio and healthy operating profitability in the midteens. We maintain our Buy rating with a SoTP-based target price of Rs 210 per share (FY24E EV/EBITDA of 45x/35x for KFC/PH on a pre-Ind AS basis)," the brokerage has said.

The stock of Devyani International was last seen trading at Rs 167.95 on the NSE.